- We maintain our BUY call on Bumi Armada, with a lower sum-of-parts-based fair value of RM4.30/share (from RM4.60/share earlier) which implies an FY13F PE of 25x.

- We have cut FY13F-FY14F net profits by 7%-11% on lower contributions from the group's floating production storage and offloading (FPSO), transport & installation and oilfield development segments. Also, we introduce FY15 earnings with a growth of 12% on the assumption of two fresh FPSOs.

- But we remain positive on the group's longer term prospects. It still hopes to secure up to three FPSO charters this year, while planning to move into more complex engineering developments such as floating storage regassification and liquefied natural gas projects.

- Amongst 172 FPSO projects in the planning stage globally, the group has identified up to 34 developments, of which Bumi Armada is on the short list of three tenders -EnQuest's Kraken project in the North Sea, Afren's Okoro block off Nigeria and ENI's OML field of Nigeria - which are expected to be awarded this year (See Charts 4-5).

- The group's FY12 net profit of RM386mil (+7% YoY) was below expectations - coming in at 8% below our earlier FY12F net profit of RM412mil and 6% of street's RM419mil. But Bumi Armada announced a full-year dividend of 3 sen (+0.5 sen YoY), higher than our estimate of 2.5 sen.

- Bumi Armada's 4QFY12 net profit rose 15% QoQ to RM109mil due:- (1) 1ppt increase in utilisation rate to 80% for offshore support vessels (OSV), (2) an 8% increase in transport and installation revenue from Armada Hawk in the D1 field off India and LukOil's contract in the Caspian Sea, (3) a RM21mil reduction in depreciation charge due to adopting a less stringent policy - 20 years to 25 years for OSV and 25 to 30 years for the Armada Installer, and (4) RM9mil forex gains.

- We estimate that the group's order book (including optional extensions) rose 14% QoQ from RM10.5bil to RM12bil (See Chart 3) from finally securing the Cluster 7 FPSO contract from ONGC. This represents a healthy 4.6x FY13F revenue.

- We continue to like the stock due to:- (1) Likelihood of new floating production storage and offloading (FPSO) vessel contracts as oil & gas developments reignite globally, (2) tightening vessel utilisation rates, and (3) premium scarcity for oil & gas stocks with large market capitalisation.

- The stock currently trades at an attractive FY13F PE of 21x compared with SapuraCrest Petroleum's peak of 29x in 2007. But for our oil & gas pick, we prefer SapuraKencana Petroleum, which has a larger order book, more transparent earnings growth momentum from its recent tender rig acquisitions from Seadrill and larger exposure to domestic oil & gas contract awards.

Source: AmeSecurities